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Can Holiday Debt Be Included in Bankruptcy?

It is not uncommon for a borrower to have available credit, or go out and apply for new credit with the intention of maxing out their credit cards and then filing Chapter 7 bankruptcy. Since its December and Christmas shopping is on everyone’s mind, we thought now would be a perfect time to discuss holiday debt and whether it can be included in bankruptcy.

If for any reason you’re thinking, “I’ll go ahead and max out my credit cards so I can buy my loved ones Christmas presents and I’ll file bankruptcy in January” you may want to stop right there. Even if you’re already in need of bankruptcy relief and your intentions are good, if you rack up your credit cards now on holiday gifts and file for bankruptcy in the near future, the bankruptcy court could accuse you of bankruptcy fraud.

Fraud Can Be Committed Before Bankruptcy

Someone can commit fraud beforeeven filing for bankruptcy? Yes, you read that right. Not all bankruptcy fraud is about lying on the bankruptcy papers or hiding assets. Some forms of bankruptcy fraud occur before the bankruptcy is filed in court.

Here are some examples of fraud before filing:

  • You get a new credit card in November or December, max it out and have zero intention of paying off the card. Instead, from the beginning you plan on including the debt in bankruptcy.
  • You buy thousands of dollars’ worth of Christmas gifts on an existing credit card with the intention of including the card in bankruptcy after the New Year (this can be proven by showing that you could not pay the credit card payment at the time of purchase).
  • Shortly before filing bankruptcy, you charge expensive, unnecessary, and even luxury items on credit cards.
  • You intentionally write a bad check for Christmas gifts and shortly afterward file for bankruptcy relief.

When you file for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy trustee may be working with your creditors. If a credit card company suspects fraud based on the types of purchases and the timing of the bankruptcy filing, the trustee will work closely with the creditor while it makes a fraud claim against you.

If you’re planning on filing for bankruptcy protection after the New Year, we do not recommend using your credit cards. If you use them and you have no resources to pay the creditors back, they can accuse you of bankruptcy fraud when you do file.

Related: Can I File Bankruptcy If I’m Unemployed?

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